The brief flirtation with the idea of printing money, or Q.E., continued last week in Parliament. The Prime Minister, John Key, was determined to make his point about hyperinflation when answering questions from the Greens. The questions were actually about the environment, but that didn’t stop Key trying to ‘table’ a Zimbabwe banknote with a nominal value of a billion, or whatever. Apparently it could only buy an egg, poached or scrambled. What a good one, someone should tell him a thousand times not to exaggerate.
Key managed to rile up Dr Norman, who got so angry he called Key a currency speculator. Meantime thousands of Polynesian children go to school without any food. But the really galling thing is Key’s argument that Q.E. helps the rich at the expense of the poor on fixed incomes, because of the dreaded inflation. Isn’t it actually National Party policy to re-distribute income from the poor to the rich. Wasn’t that why they started their term in office by cutting tax rates on the top income earners, and funding it through a rise in the GST rate. You’d think that there would be no problem with printing money if it were simply about income distribution, not interest rates.
Also last week, the first word from the great oracle, the Governor of the Reserve Bank. The new governor, former Treasury official and cricketer, Graeme Wheeler, had his first chance to do something. And so he did nothing, or so it would seem. The bank rate is to be unchanged at 2.5%, one of the highest in the developed world. What he did do was assure the markets he was committed to having a relatively high rate, giving certainty to foreign bondholders of their safe bet in New Zealand public debt. So guess what: the exchange rate went up again, as confidence rose. This helped the critics of the high exchange rate, but showed again that monetary policy is about the exchange rate, not domestic inflation and the supply of money.
Wheeler also made a speech in which he declared printing money was useless, at least for New Zealand. This was despite all the other major central banks doing the Q.E. thing, and having bloated balance sheets as a result. No bloating for New Zealand, we are purists, still the thoroughbreds in central banking. Still stuck in the 1980s, though with interest rates now at around 2%, instead of over 20%; and deflation, not inflation, being the great threat to the god of price stability. Still, those house prices keep rising, and the bank profits too, mostly going offshore. Speaking of offshore, someone finally noticed that New Zealand runs a tax haven capacity for foreign trusts, and has done since 1988.
Why did John Key dream of making New Zealand an international finance centre, when it already is one, without having to be a banana republic as well. Does anyone remember that Winebox thing, and the practice of tax evasion by New Zealand corporates. What an unwelcome distraction that was, and perhaps printing money fills the same function, by looking at a rhetorical strawman, instead of us questioning the current role of foreign finance in New Zealand.